FMCG’s supercharged shift to online in China, according to OC&C Strategy Consultants’ new study

October 25, 2016 | PRESS RELEASE

OC&C today launched a report titled: “Bits & Bytes: FMCG’s shift to e-commerce in China”, which aims to help fast-moving consumer goods (FMCG) brands understand e-commerce trends in China.

  • Online FMCG in China is already bigger than the US and UK combined and is going to keep growing strongly
  • 'Familiarity’ is the key reason consumers rely on certain online platforms, followed by ‘competitive prices’, providing a ‘convenient one-stop shopping destination’ and a ‘ubiquitous payment’
  • While Alibaba is still the biggest largest online FMCG player, the online FMCG market is much more fragmented than China e-commerce in general
OC&C Strategy Consultants today launched a report titled: “Bits & Bytes: FMCG’s shift to e-commerce in China”, which aims to help fast-moving consumer goods (FMCG) brands understand e-commerce trends in China, hence to derive the best strategy for their target segments in this rapidly growing market.

The Chinese FMCG online market has grown astonishingly in the past four years, from just US$1.4bn in 2010 to more than US$25.3bn today, according to Euromonitor. It has far surpassed any other country in the world and is about twice as big as the US.  While large, FMCG still has a relatively lower online penetration than other categories in China, providing ample opportunities going forward especially given favourable tailwinds. 

The post-80s and 90s generation in China, who grew up with the internet, are coming of age and entering the workforce, forming families and increasing their need for FMCG. It is unquestionable that they will become an important customer segment and driving overall growth of FMCG e-commerce. Moreover, growth is not only coming from the younger generations. In fact, more people aged between 30 and 50 intend to devote more of their FMCG spending to online channels next six months, suggesting the universality of growth of FMCG e-commerce.

“Price and convenience related factors are consistently placed as the top reasons for buying FMCG online in China. Growing middle class want to save money on everyday consumables so they can use these savings towards a better lifestyle including for dining out or buying international fashion brands,” said Jack Chuang, Partner, Greater China, OC&C Strategy Consultants.

He added, “consumers’ need for convenience is fuelling the demand to buy FMCG online anywhere, anytime. All these are favourably fulfilled in China given the rapid development in infrastructure and logistics across the country, with leaps and bounds in both intra-country movement of goods as well as last-mile delivery to consumers. These make online shopping of FMCG easy, inexpensive and fast.” 

When respondents were asked to rate various e-commerce platforms based on their experience, Alibaba’s platforms were neither the most highly rated, nor are they frequently ranked among the top five across selected FMCG categories.

However, interestingly, when the survey asked about brand awareness and actual purchases, Tmall and Taobao, under Alibaba, received highest brand awareness and shopper penetration across the major FMCG categories. 

A third of survey respondents ranked ‘familiarity’ as being the key reason on why they rely so much on a particular online platform. Beyond benefiting from being an early entrant, Alibaba is also able to provide competitive prices, a convenient one-stop shopping destination, as well as a ubiquitous payment system
 
“Online platforms in China are always fighting for customer traffic and market share, yet consumers often perceive buying on Alibaba a bargain, thanks to its promotions,” added Chuang. “Selling online in China is rewarding yet not easy. Brands can benefit and achieve their online objective through partnering with strategically-aligned platforms and by customising their offerings to cater to various needs of different market segments. In addition, brands need to figure out the level of control and capability which an online store demands, so as to determine whether to establish in-house operations or to rely solely on platforms. Choosing the right model and strategy can definitely make it much more effective.”

Though Alibaba’s dominance remains undeniable, the online FMCG market is relatively more fragmented than retail in general, whereby Alibaba commands a ~52% share in FMCG as compared to ~70% overall.  

“Just as you would not depend entirely on one particular store format (e.g. hypermarkets or mom-and-pop stores) as you formulate your offline channel strategy, the same applies to online whereby brands should leverage each platform’s unique strengths, be it its large traffic flow, strong authenticity and quality, more personalized customer service, etc.,” commented, Chuang.

“At the same time, companies should treat e-commerce not only as a sales channel but also as a platform to build their brand. For example, premium players can build brand awareness to a wide audience by opening a flagship store, while other companies who lacks physical presence in China, can utilize cross-border platforms to ‘test the water’ prior to their full market entrance. They should also integrate offline and online channels to create a win-win proposition, either through leveraging existing offline infrastructures, such as distributor networks, to facilitate online sales; they may also consider using e-commerce to facilitate offline strategies,” concluded Chuang.

The study canvassed 4,600 respondents from 16 cities across China, looking into 13 selected sub-categories across infant milk formula, packaged food and soft drinks, alcoholic beverages, and beauty and personal care, from August to September 2016. 

Bits & Bytes: FMCG’s shift to e-commerce in China publication is available to read online or download.

For more information or an interview with OC&C, please contact:

MHP Communications Hong Kong
Greg Kwan
Greg.Kwan@mhpc.com
T +852 2140 6022
M: +852 6021 6948